Border Business Briefs Q2 Spring 2014

A Publication of the Center for Border Economic Studies

Border Business Briefs

Spring 2014 | v. 10 no. 2

SouthTexasEconomy

Financial literacy programs in the RGV P. 8

A decline in RGV earnings P. 21

Center for Border Economic StudiesCOLLEGE OF BUSINESS ADMINISTRATION

The Center for Border Economic Studies (CBEST) is a public policy research unit of the College of Business Administration at the University of Texas-Pan American. CBEST is dedicated to the study of problems and issues unique to the U.S. and Mexico border economy. CBEST conducts interdisciplinary research that support economic development, trade, entrepreneurship, innovation, social mobility, and access. Among its technical reports, the Center publishes the Border Business Brief (BBB) (a quarterly publication), and the Business Outlook Forecast (annual publication). CBEST has strategic partnerships with private sectors, foundations, government agencies, research scholars, and nonprofits to fulfill its mission.

CBEST’s focuses on research in the area of interdisciplinary policy, in support of sustainable economic development. We publish articles, monographs, books and reports that examine economic, social and political issues in the border region and make them available to policymakers, business leaders, government officials, academics, students and the border community in order to foster informed decision-making.

In addition, CBEST provides contract services in policy research, survey design, data collection, data research analysis, data interpretation, presentations and reports. These services are performed for a fee. Please contact CBEST for additional information on the contract services we provide.

1201 W. University Drive, Edinburg, TX 78539 | [email protected] | www.utpa.edu/cbest

DirectorDr. Salvador Contreras

Editorial BoardPablo Camacho, Ph.D.Texas A&M International University

Salvador Contreras, Ph.D. The University of Texas-Pan American

Alberto Davila, Ph.D.The University of Texas-Pan American

Tom Fullerton, Ph.D.The University of Texas at El Paso

Gautam Hazarika, Ph.D.The University of Texas at Brownsville

Advisory BoardIsmael DelgadoSan Juan EDC

Raudel GarzaHarlingen EDC

Maria MannSCIC-Women’s Business Center

Alex MeadeMission EDC

Cynthia M. SakulenzkiRGV Hispanic Chamber of Commerce

Joey TreviñoWeslaco EDC

A Publication of the Center for Border Economic Studies

Border Business Briefs

Editor-in-ChiefDr. Salvador Contreras

Editorial BoardPablo Camacho, Ph.D.Texas A&M International University

Salvador Contreras, Ph.D.The University of Texas-Pan American

Alberto Davila, Ph.D.The University of Texas-Pan American

Tom Fullerton, Ph.D.The University of Texas at El Paso

Gautam Hazarika, Ph.D.The University of Texas at Brownsville

Editorial ContributorsAshley Mercado

Kenny Ozuna

April M. Rutledge

Studio Twelve01 TeamThe University of Texas-Pan American

Contact [email protected]

Follow us on Twitter@BorderEconomy

May 1, 2014

Dear Reader,

Thank you for your continual support. This is the second issue under the new Director of CBEST and Editor of this publication. This issue contains a diverse set of stories that delivers on the interest of a diverse readership.

This issue features stories that cover financial literacy, migration settlement patterns of Mexican immigrants, and evaluates the impact of the peso/dollar exchange rate on border crossings. We tackle employment in South Texas and present a consensus forecast of Mexico’s economy. The cover features our UTPA economics students who won the Up-to-Us National Competition. We present a brief outline of the book by Alberto Davila and Marie T. Mora, Hispanic Entrepreneurs in the 2000s. Finally, we continue to showcase our Rio Grande Valley talent.

The publication and articles are the work of countless individuals. This publication would not be possible without their work. I thank the authors for their contributions. We are indebted to April Rutledge, Ashley Mercado, and Kenny Ozuna who volunteered to proofread our articles. In addition, we are thankful to Studio Twelve01 for their support.

The work of CBEST and its publications are possible through the generosity of our readers and sponsors. Please visit our website (http://utpa.edu/cbest) and pledge today.

We hope you enjoy this issue. Feel free to send your feedback about the publication and general comments to CBEST at [email protected].

Best regards,

Dr. Salvador ContrerasEditor-in-Chief


This Issue

8Financial Literacy

Addressing financial literacy in the RGV

16ImmigrationMexican immigrants in the RGV

12MexicoMexico economic outlook is positive

14National Debt

UTPA Students Win the Up to Us Competition

Border Business Briefs | Spring 2014

18Exchange Rates

Crossing incentive

26Valley TalentVIP award recipient

21Labor MarketEarnings and employment trends

24Book Review

Hispanic entrepreneurs in the 2000s

South Texas

Sources: Unemployment rate and nonfarm employment are monthly and come from U.S. Department of Labor. Non-farm Employment measures the percentage change from one year ago. Gross sales are quarterly and reported by the Texas Comptroller of Public Accounts. Gross sales percentage change meausure Q3 2013 from Q3 2012. House prices index is quarterly data that comes from the Federal Housing Finance Agency. The reported house price is the percentage change in the index from a year ago. The image on the cover was downloaded from http://www.itsuptous.org/.

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Financial Literacy

Financial Literacy in the Rio Grande Valleyby Terrance K. Martin and Sara K. Ray

Over the past several years, and especially since the 2007-08 financial crisis and the Great Recession, the need for financial literacy education has been at the forefront of policy discussions between politicians, educators, and the business community. There are several reasons as to why financial literacy and financial literacy education

are so prominent in policy discussions. One such reason is the exponential growth of student loan debt among college graduates and those who never completed their post high school education. Another reason is the shift in retirement funding responsibility from employers to employees which has effectively placed retirement savings and investment decisions in the hands of a largely unequipped population.

8

Table 1: Rio Grande Valley selected credit measures

Source: Texas Regional Opportunity Index


Hidalgo County

Cameron County

Starr County

Texas

Subprime Credit Score Rate 56.30% 55.70% 56.50% 44%

Credit Card Debt Burden 5.90% 5.80% 6.70% 3.70%

Student Debt Burden 21.40% 18.10% 22.70% 12.80%

From empirical research, we know that a majority of Americans are unable to answer three basic personal finance questions used to proxy financial literacy that include the following:

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?(a) More than $102 (b)Exactly $102 (c) Less than $102 (d) Do not know (e) Refuse to answer

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?(a) More than today (b) Exactly the same (c) Less than today (d) Do not know (e) Refuse to answer

3. Please tell me whether this statement is true or false. “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”(a) True (b) False (c) Do not know (d) Refuse to answer

Further, low financial literacy has been linked to investment mistakes, low retirement savings, and, in general, bad financial decisions. The truth is that it takes financial knowledge to realize the presence of financial mistakes. But what is financial literacy? Researchers are not in agreement on a standard definition or uniformed measurement; however, for this article, a financially literate person is able to

take their knowledge and ability and apply them to navigate within the economy. Financial literacy, therefore, is a form of human capital specific to personal finance topics.

There is a strong need for financial literacy in the Rio Grande Valley. A brief review of the data from the Texas Regional Opportunity Index echoes this sentiment. Figure 1 shows average credit scores for the three RGV counties – Hidalgo,

Cameron, and Starr – relative to the state of Texas. On average, all three counties have credit scores at least 30 points lower than the state average. Table 1 presents

other important data points concerning debt in the RGV relative to the state.

From Table 1, we note that in the RGV, on average, we have more subprime credit scores, which are credit scores lower than 660, as compared to Texas as a whole. Further, the student debt burden (the amount of student debt as a percentage of median family income) is at least 1.5 times more than the state average of 12.8%. Another alarming figure is the number of unbanked households in the RGV.

An unbanked household is defined as a household that does not have an open checking or savings account at a financial institution such as a bank or credit union. Figure 2 shows

“all three counties have credit scores at least 30 points lower than the

state average”

9

“Hidalgo County is the most unbanked large county ... with 21.6% of households

without bank accounts”

Figure 1:


the level of unbanked households in the RGV relative to the state. In fact, out of all U.S. counties, Starr County is the

most unbanked county with 32.7% of households without bank accounts and Hidalgo County is the most unbanked large county (counties with 100,000 or more households) with 21.6% of households without bank accounts. All of these numbers reflect just a snapshot of the financial literacy problems that plague deep South Texas, which has been identified as one of the poorest areas in the entire country.

So what can we do about it? Research shows mixed results on the effectiveness of financial education. Some researchers feel strongly that financial education does not work, while others find evidence of correlation to improved financial outcomes. Earlier we noted that researchers have not yet agreed on a standard measurement of financial literacy. We believe that emphasizing a definition of financial literacy that focuses on both

financial knowledge and financial behavior as it is applied to functioning within the economy is an important foundation for developing effective financial literacy education programs.

In the RGV, there are several organizations working towards educating a more financially literate population. For example, the Deep South Texas Alliance on Financial Literacy (a group of banks businesses, and academic leaders) meets on a regular basis throughout the year to unite their efforts in educating the South Texas community on personal finance. The Region One Gear Up program has a financial literacy initiative built into their efforts to prepare South Texas adolescents to be college-ready, and here in the Department of Economics and Finance at UTPA, we have the Financial Literacy Challenge.

The UTPA College of Business Administration and the Department of Economics and Finance hosted the Spring

“Starr County is the most unbanked county

with 32.7%”

10


Figure 2:


2014 State Farm sponsored Financial Literacy Challenge (FLC) program for high school students in order to provide personal financial literacy education to Rio Grande Valley youth. During the course of this program, trained College of Business Administration undergraduate student mentors facilitated personal finance lessons and activities over a six-week period with students from selected high schools throughout the RGV. The goal of the FLC, which will be hosted at UTPA again in Spring 2015, is to help soon-to-graduate high school students gain knowledge and skills to engage in healthy financial behavior that will enable them to wisely plan for college, careers, and a lifetime of financial well-being.

The main event of the Spring 2014 FLC was the FLC Competition Day held on Saturday, April 12, 2014 at the UTPA Community Engagement & Student Services (CESS) Building. Teams of students from three Rio Grande Valley

high schools faced-off against each other in a game show style competition; the top three teams were awarded cash prizes in the form of bank accounts.

The FLC is just one part of some exciting projects that have been launched or are in development at UTPA – not just for high school students but for UTPA undergraduate and graduate students, as well. These programs are an invaluable service to our community that will impact students’ financial and non-financial well-being across their lifetimes. One past high school student who participated in the FLC said, “Competing in the Financial Literacy Challenge was a valuable experience. Learning about the world of finance opened my eyes to the realities of spending and saving. The thorough financial literacy training helped me understand how to manage money effectively and avoid splurging on something unnecessary. I feel the knowledge and skills gained from this program will surely help me in the future

when living on my own.”

There is no expectation of an overnight change in the financial mindset in the RGV. However, the winds of change are blowing as more and more people, businesses, and institutions join the fight against financial illiteracy in the RGV.

_____Dr. Terrance K. Martin is the program coordinator for the Financial Literacy Challenge and Assistant Professor of Finance at The University of Texas-Pan-American

Sara K. Ray is the program assistant for the Financial Literacy Challenge at the University of Texas-Pan American and (starting Fall 2014) Ph.D. student at Iowa State.

Endnotes:Survey questions come from de Bassa Scheresberg, Carlo (2013) “Financial Literacy and Financial Behavior among Young Adults: Evidence and Implications,” Numeracy: Vol. 6: Iss. 2, Article 5. Available at: http://scholarcommons.usf.edu/numeracy/vol6/iss2/art5 The Texas Regional Opportunity Index (TROI) is a compilation of data from various sources assembled by the Center for Public Policy Priorities in Austin, Texas. “The Most Unbanked Places in America.” Corporation for Enterprise Development (CFED). http://cfed.org/newsroom/experts/ethan_geiling/the_most_unbanked_places_in_america/index.html

11

Mexico

Mexico’s Economic Outlook Remains Moderately FavorableBy Tom Fullerton and Adam Walke

Real GDP

3.1%

Consensus 2014 Forecast

Inflation

4.1%

12

A recently released report from The University of Texas at El Paso (UTEP) Border Region Modeling Project indicates that the economy

of Mexico should continue to expand in 2014. Growth in Mexico faltered during the 4th quarter of 2013, with real GDP only 0.7 percent above the level attained during the last quarter of 2012. However, economic panelists surveyed by UTEP predict that GDP growth will accelerate this year, driven by higher government spending and an investment recovery. The consensus calls for 3.1 percent growth in real GDP.

Private consumption is expected to still grow at a moderate pace. Although recent tax increases may dampen consumer demand, this effect is likely to be muted by factors such as formal-sector job growth. Private consumption is predicted to grow by 3.1 percent in 2014.

Government consumption in Mexico is expected to rise substantially in 2014. Higher tax revenues are anticipated and the government is planning extra spending to counteract recent deceleration in the economy. On average, panelists predict 3.8 percent growth in government consumption.

Investment spending declined in 2013, mainly as a result of a weak construction sector. With interest rates remaining relatively low and new public infrastructure projects in store, investment is expected to revive in 2014. The consensus forecast calls for 5 percent growth.

Improving economic conditions among several major trading partners supports the consensus forecast of 4.2 percent export growth. Import growth is expected to be even higher at 6.2 percent. The latter forecast represents a substantial upward revision since last quarter.

The average of panelist inflation forecasts is 4.1 percent. This is slightly above the Central Bank of Mexico target range. While new taxes and peso depreciation are likely to nudge inflation upward, potential inflationary


pressures from other sources seem to be fairly limited.

The consensus exchange rate forecast is 13.14 pesos per dollar. This is slightly higher than last year’s average exchange rate. Some factors behind the moderate peso depreciation are the potential for higher relative interest rates in a number of other countries and greater global risk aversion.

The predicted yield on 28-day CETES is 3.4 percent. This represents a downward revision relative to the forecast published last quarter and is below the forecasted rate of inflation. The central bank has indicated a willingness to keep interest rates low as a consequence of the relatively slow pace of recent economic growth.

Economic expansion is expected to accelerate slightly in 2015 with GDP and private consumption rising by 3.6 and 3.5 percent, respectively. Government spending is projected to grow by 4.4 percent, which is above the recent historical average. Estimated growth in total investment is projected to increase to 5.7 percent.

A steady expansion of foreign trade is also expected in 2015, with projected growth of 4.5 in exports and 5.5 percent in imports. The forecasted inflation rate is 3.7 percent and the exchange rate is predicted to remain steady at 13.14 pesos per dollar. As economic conditions improve, interest rates are expected to rise and the return on 28-day CETES is predicted to increase to 3.9 percent.

UTEP surveys academic and professional economists once a quarter to assess economic prospects in Mexico. The complete report can be downloaded from the Digital Commons at the UTEP Library. The Mexico Consensus Economic Forecast is now in its 17th year of production.

_____Dr. Tom Fullerton is Professor of Economics at The University of Texas at El Paso where he holds the Trade in the Americas Chair

Adam Walke is an Associate Economist with the Border Region Modeling Project at The University of Texas at El Paso

“panelists predict 3.8 percent growth in government consumption”

13

National Debt

UTPA Students Win the Up to Us Competition

by James Boudreau

14

On the weekend of March 21-23, 2014, a team of UTPA students had the honor of being

flown to Phoenix, Arizona to attend the Clinton Global Initiative University’s annual conference. Even better, during the conference the students were officially recognized by former-President Bill Clinton himself for their victory in the “Up to Us” competition, a national contest sponsored jointly by the Peter G. Peterson Foundation and the Clinton Global Initiative (CGI).

The purpose of the Up to Us contest is for teams of university students to organize campaigns on their campuses to raise awareness about the U.S. national debt, which now stands at over $17.5 trillion. Over 100 teams from schools all over the country initially entered the contest, but only 25 were selected by the contest organizers to stage campaigns, including schools such as UT-Austin, NYU, and Northwestern. UTPA’s team came out on top, winning first place overall.

According to the contest organizers, the UTPA team which consisted of Fabiola Urgel, Christopher Villarreal, Carlos Aguayo, Edna Pulido, and Luis Basurto stood out from the very beginning of the competition, as their initial proposal emphasized getting the message out not just to their campus community, but also to the local community at large.

Given the unique characteristics of the Rio Grande Valley, the UTPA team felt that the national debt was an issue that its residents needed to be more aware of. Many UTPA students, for example, work fulltime and care for family members in addition to going to school. Contemplating something as seemingly abstract and far away as the national debt is therefore unlikely to be high on their day-to-day priority list. But just because a problem seems far away does not mean

that it will not have consequences that hit close to home.

As the debt continues to grow, the consequences involved in dealing with it become more and more severe. A lack of solutions is not the issue; eventually the debt will be settled one way or another. It could be because the government taxes more, or spends less, or both. It could be because the government allows inflation to take care of the problem. It could be because the government simply defaults on its obligations. The question of how the debt can be dealt with is an easy one, with lots of answers that economists are well aware of. The question of how the debt should be dealt with, however, is much harder.

Each of the different ways that the U.S. can tackle its outstanding debts has different consequences for different people. That is what makes it so hard for society to make a collective decision on how to deal with it. There is no one solution that at least some people will not object to. But that does not mean that a decision will not be made. Even not making a decision is itself a decision with consequences.

The purpose of the UTPA Up to Us team’s campaign was to educate their community about what each possible solution could mean for them. And though it may be difficult to believe given today’s increasingly polarized media environment, they made sure to present information as objectively as possible. A key concept underlying their approach to the campaign was the idea that they did not have the right answer. They just wanted to help people understand what the possible answers would mean for them.

The campaign itself consisted of a variety of events and activities aimed at reaching as wide an audience as possible. Speakers from across the political spectrum were

invited to speak on campus about issues related to the national debt. The students themselves held on-campus tabling sessions during which they provided information for their peers, visited local high schools to speak with students and teachers about the national debt and financial literacy, and even hosted free barbeques at which they presented information more casually.

The crowning achievement of the team’s campaign was an original play that they created with the (substantial) help of several UTPA theater majors, called “The Debt Ultimatum.” The play was exceptional because it presented basic facts about the national debt in an interesting, accessible, and often humorous way. It highlighted the effects the debt could have on Rio Grande Valley residents in particular, but since its characters included representatives from all ages and backgrounds, its overall message was quite general. That message was essentially the team’s overall campaign message: there are plenty of ways to address the national debt; it is up to us to do our best to understand what each of them means so that we can make an informed social decision.

The contest organizers obviously appreciated the UTPA team’s approach. They were particularly impressed with its creativity, and also the team’s commitment to extending its message not just across campus but beyond it. In winning first place overall, the students were awarded with a prize of $10,000 and an all-expenses paid trip to the CGI University’s conference, where they met both Bill and Hilary Clinton. _____Dr. James Boudreau is Assistant Professor of Economics and faculty advisor of the Up to Us team at The University of Texas-Pan American.

15


Immigration

Mexican Immigrants in the Rio Grande Valley by Mark Hugo Lopez

16


According to tabulations from the Pew Research Center, the United States (U.S.) has more immigrants

from Mexico than most countries have immigrants. In 2011, some 11.7 million Mexican immigrants lived in the U.S., making up by far the largest origin group among the nation’s more than 40 million immigrants.

The size of the Mexican immigrant population in the U.S. has risen dramatically over the past four decades as a result of one of the largest migration waves in modern history. In 1970, just 1 million Mexican immigrants lived in the U.S.. By 2007, that number reached a peak of 12.5 million.

Mexican immigrants are dispersed across the U.S., with a majority residing in the border states of California, Arizona, New Mexico and Texas. Texas contains 22%

of the nation’s Mexican immigrants. Some 326,000 Mexican immigrants live in the two metropolitan areas of the Rio Grande Valley. The majority of these (71%) live in the McAllen-Edinburg-Pharr-Missionmetro area, the tenth largest Mexican immigrant population among U.S. metro areas. The remainder, about 95,000 Mexican immigrants, lives in the Brownsville-Harlingen-San Benito metro area.

Mexican immigration into metro areas in the state of Texas has fluctuated over the decades. For example, 40% of the Mexican-born population in the Dallas-Forth Worth metro area arrived after 2000. By comparison, in the Houston-Brazoria metro area 66% of its Mexican-born population arrived before 2000. Similarly, of the 231,000 Mexican immigrants in the McAllen-Edinburg-Pharr-Mission metro area 66% arrived before 2000. Among the 95,000 Mexican immigrants in the

Brownsville-Harlingen-San Benito metro area, 73% arrived before 2000.

_____Dr. Mark Hugo Lopez is Director of Hispanic Research at the Pew Research Center

Endnotes:See Motel and Patten 2013 “Statistical Portrait of the Foreign-Born Population in the United States, 2011” and Gonzalez-Barrera and Lopez “Mexican-Origin Hispanics in the United States” Pew Research reports for further reading on the topic. Also, the 2011 “The Mexican-American Boom: Births Overtake Immigration” reports on demographic shifts in the U.S. Mexican-origin population. These reports are available at the Pew Research Center website (pewhispanic.org).

Rank Metropolitan Area Total Before 1990 1990 to 1999 2000 or after

1 Los Angeles-Long Beach, CA 1,776 860 524 3912 Chicago, IL 667 237 230 2003 Dallas-Fort Worth, TX 602 156 207 2404 Houston-Brazoria, TX 591 188 205 1975 Riverside-San Bernardino,CA 538 274 154 1116 San Diego, CA 335 157 88 907 Phoenix, AZ 324 116 114 948 New York-Northeastern NJ 301 53 94 1549 San Francisco-Oakland-Vallejo, CA 298 103 85 11010 McAllen-Edinburg-Pharr-Mission, TX 231 99 54 79

21 Brownsville-Harlingen-San Benito, TX 95 47 22 28

All Mexican Immigrants 11,651 4,057 3,576 4,019

Table 1: Mexican Foreign Born Populations by Metropolitan Area (in thousands)

Source: Pew Research Center tabulations of the 2011 American Community Survey

17

Life in border cities is greatly influenced by the interaction with the neighboring country. One unique characteristic of these

cities is the large physical merchandise trade flows and border crossings. The exchange rate is among the key determinants of these flows with the link between trade flows and exchange rates being widely acknowledged and analyzed in academic research. However, with the exception of work by Thomas M. Fullerton, an economist from The University of Texas at El Paso, less has been said about the role of exchange rates on border crossings.

The intuition behind the link between exchange rates and border crossings is very simple: when the U.S. Dollar depreciates, you need less Mexican pesos to buy one U.S. dollar. We argue that depreciations encourage border crossings by increasing the purchase power of Mexican nationals who shop on the U.S. side of the border. More formally, in this short note we summarize an analysis of the dynamic effect of peso-dollar exchange rate

innovations on the northbound border crossings on the Brownsville, Laredo, and Hidalgo ports of entry.

The monthly time series data for this analysis spans from January 2006 through December 2012 and was obtained from the U.S. Department of Transportation’s Research and Innovation Technology Administration and from the Federal Reserve Bank of St. Louis. Our first figure illustrates

Border Crossings

Border Crossings and the Peso-Dollar Exchange Rates by Luis Basurto and Diego Escobari

“depreciations encourage border

crossings”

18


Figure 1: Border Crossings

Figure 2: Impulse Response

19

border crossings, as measured in thousands of individuals who crossed as pedestrians or as passengers in vehicles or buses. This time series plot shows a decrease in the number of border crossings in the last three years. The Great Recession dates as defined by the National Bureau of Economic Research, and illustrated as the light orange shaded area, appear to have no significant effect on crossings. However, for the gray shaded areas that mark the November and December months, crossings appear to be systematically higher. This is consistent with Mexican nationals crossing to shop during black Friday and for the Christmas Holiday.

To analyze the dynamics of the effect of the exchange rates on border crossings we estimate a simple two-equation Vector Autoregressive model. To illustrate our results in the second figure we plot the Impulse Response Function for our estimates for Brownsville. The solid red line represents the point estimate dynamic effect of an exchange rate innovation (shock) on border crossings. The gray shaded area represents the 90% confidence band. The results are consistent with simple intuition. A one peso increase in the peso-dollar exchange rate (e.g., from 12 to 13 Pesos per one U.S. dollar) decreases northbound border crossings by about 15,000 people two months later and by about 36,000 people 10 months later. At the sample mean of border crossings, the effect at two months of a one point increase in the exchange rate corresponds to about 1% decrease in border crossings. After about one year and a half, the effect is not statistically significant. Similar results were found for Laredo and Hidalgo.

The goal in this simple analysis is to help our understanding and awareness of how border crossings are affected by the exchange rate. It is estimated that Mexican nationals spend approximately $4.5 billion per year in Texas border retail. By understanding how innovations in the exchange rate affects border crossings, we believe border retailers (as well as the overall border economy) can better predict seasonal fluctuations in the demand and adjust prices and inventories accordingly.

_____Luis Basurto is pursuing an undergraduate degree in economics at The University of Texas – Pan American.

Dr. Diego Escobari is Assistant Professor of Economics at The University of Texas – Pan American.

Endnotes:See Thomas M. Fullerton (2000): “Currently Movements and International Border Crossings.” International Journal of Public Administration, 23, pp. 1113-1123.

An earlier version of these results were presented in the poster session at the Third Annual Border Economic Development and Entrepreneurship Symposium (BEDES). Additional work included unit root tests to assess stationarity as well as using the AIC and BIC for optimal lag selection and eigenvalues to check the stability conditions. Exchange rate goes first in the Cholesky decomposition for the IRF.A one peso increase in the exchange

rate decreases northbound border crossings by about 15,000 two months later and 36,000 10

months later

20

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Figure 1: Employment growth by MSA Figure 2: Weekly earnings growth by MSA

Labor Market

A not so hot South Texas labor market by Salvador Contreras

On April 4 the Bureau of Labor Statistics reported a rise in March employment of 192,000. The number

was sufficient to keep the unemployment rate for the month of March at 6.7% unchanged from February. An unemployment rate of 6.7% compared to a benchmark high of 10% on October 2009 indicates a considerable improvement in the US labor market. By some

Data was retrieved from the Federal Reserve Bank of Saint Louis Bank website. Figure 1 shows average growth rates over a 12-month period on January 2014 for selected employment sectors for each MSA. Figure 2 shows the January 2014 earnings growth rate over the average earnings in the previous 12 months and the average earnings of average growth rates over the previous 12 months. Figure 3 is the ratio of retail over total employees for each MSA for the January 2007 to January 2014 period. Figure 4 is the ratio of goods production over total employees for each MSA for the January 2007 to January 2014 period.

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measures the US labor market has been doing quite well over the past few years. However, the employment situation in South Texas continues to trail the national average and is indicative of a different story.

The Rio Grande Valley labor market struggled for most of 2013. The McAllen-Mission-Edinburg MSA reported total private

Figure 3: Retail employment share by MSA Figure 4: Goods employment share by MSA

Figure 2 shows that over the past 12 months employment in retail has not changed much in the McAllen-Edinburg-Mission MSA. Retail employment increased in the Brownsville-Harlingen MSA by less than 1%. Corpus Christi and El Paso enjoyed an average rise of 1.6% while San Antonio-New Braunfels MSA had a growth rate of almost 2%. The Rio Grande Valley’s largest MSA’s had lower than the State average employment growth in retail and employment overall.

There are some indications of a positive outlook for local economy. Employment in goods production was up almost 2% in the McAllen-Edinburg-Mission MSA. This is equal to Laredo MSA and above the state’s average of 1.5%. However, the Brownsville-Harlingen MSA had a drop of 1.7%. On levels, the Brownsville-Harlingen MSA had the same number of people employed in goods production (9,000) in January 2014 as in January 2013. However, our average of averages measure captures a long-term negative trend for the Brownsville-Harlingen MSA.

Overall, the employment picture looks less favorable for the Rio Grande Valley largest MSAs when compared to other South

Texas MSAs.

Figure 2 show average weekly earnings growth rates. The first column is the January 2014 growth rate over the average earnings of the preceding 12 months. The second column is the average growth rate of the preceding 12-months growth rates. In essence, column two captures the long-run trend. By either of these two measures the McAllen-Edinburg-Mission MSA had the worst weekly earnings growth rates. In examining the first column we can conclude that wages fell 5.1% over the average weekly earnings of the previous 12 months. Or wages fell 6.1% on average over the past 12-months average growth rates. This suggests that wages in the next couple of months will likely trend further in the negative direction. For perspective, the McAllen-Edinburg-Mission MSA average weekly earnings in January 2014 stood at $472, which is down from $520 in January 2013. That’s $48 less or a decline of 9%.

By our measure of income growth, Laredo MSA and San Antonio-New Braunfels MSA round the bottom three worst wage performers. However, Laredo MSA has the second worst wage growth trend. For example, Laredo MSA weekly earnings in

employment of 182,000 in January 2014. This compares to the preceding 12 month average of 179,000. This is a 1% growth in total private employment. In Figure 1, the bar presents the 12-month average employment growth rates. Each month growth rate is computed over its 12-month average. McAllen-Edinburg-Mission MSA and Brownsville-Harlingen MSA employment (total private) grew at an average of 1.3% in the past 12 months ending January 2014. This is above the Corpus Christi MSA and El Paso MSA 1.1% rate but below Laredo MSA and San Antonio-New Braunfels MSA 1.4% and 1.5%, respectively.

Figure 1 also shows the 12-month average growth rate in retail employment (column 2) and goods production employment (column 3). Of the six MSAs, the McAllen-Edinburg-Mission MSA is the most dependent on retail. About 19% of all employees in the McAllen-Edinburg-Mission MSA are in retail. Figure 3 shows that the share of retail to total employment has been quite stable for the MSA. Hovering from around the 19-20% range over the past 7 years. Laredo MSA has had a steep decline in its Retail share of total employment from about 19% to 17.5%.

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Figure 5: Historical earnings growth rates by MSA

January 2014 were $482 down by $18 from January 2013 or down 3.5%. At the opposite end, Corpus Christi MSA had the best wage gains. The average employee in Corpus Christi MSA earns on average $795 a week (highest earnings of all six MSA’s). The average employee in Corpus Christi earns about $50 less than the average Texan ($845).

Figure 5 plots weekly earnings growth rates over the same month from the previous year. The figure also includes a 7-year trend line. The 7-year trend lines are negative for only two MSAs (El Paso MSA and McAllen-Edinburg-Mission MSA).

The McAllen-Edinburg-Mission MSA has the worst 7-year trend line over all other MSAs. However, what is clear is that 2013 was a bad year for the average employee in Brownsville-Harlingen MSA, Laredo MSA, and McAllen-Edinburg-Mission MSA. In contrast the best performer was Corpus Christi MSA followed by the state of Texas.

Employment patterns and weak wage growth by the two largest MSAs in the Rio Grande Valley are not encouraging. High dependence on retail and a 7-year trend decline in goods production (as shown on Figure 4) will likely affect regional

economic activity for the 1st and 2nd quarter of 2014. In relative terms, El Paso MSA and Laredo MSA seem to indicate moderate economic stability compared to the Rio Grande Valley’s two larges MSAs. The El Paso MSA and Laredo MSA 7-year trend line on Figure 5 is not encouraging. The lines are essentially flat and it remains to be seen if these two MSAs can capitalize in the momentum growth in goods producing employment. _____Dr. Salvador Contreras is Assistant Professor of Economics at The University of Texas-Pan American

The scatter plots are monthly year over year weekly earnings growth rates for the selected MSAs. The red line is a regression line. The time period covers January 2008 to January 2014. Data was retrieved from the Federal Reserve Bank of Saint Louis Bank website.

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Book Review

Hispanic entrepreneurs in the 2000s

By Alberto Davilaand Marie T. Mora

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In the first decade of the 2000s, over half of the population growth in the U.S. was a product of its increasing Hispanic population. One, among many,

of the consequences of this growth was the significant increase in the number of Hispanic entrepreneurs during this time.

To illustrate, the number of Hispanic-owned businesses rose by nearly 44 percent (from 1.6 to 2.3 million firms), between 2002 and 2007. Beyond sheer population growth, moreover, intensifying entrepreneurial tendencies within the Hispanic population also contributed to their rising numbers of entrepreneurs during the decade. Many of these changes were driven by Hispanic immigrants.

Our book “Hispanic Entrepreneurs in the 2000s” released in 2013 by Stanford University press represents one of the first comprehensive economic studies of this increasingly important population in the first decade of the 2000s. Using powerful data sets, including the newly released Survey of Business Owners Microdata Sample and the American Community Survey, it highlights key economic and socio-demographic characteristics of Hispanic entrepreneurs.

Where possible, it provides in-depth analyses of differences in the self-employment experiences across specific Hispanic populations, such as between women and men, U.S. natives versus immigrants, and across sub-groups (Mexican Americans, Puerto Ricans, Cubans, and Salvadorans—the latter of which was one of the fastest growing Hispanic populations in the U.S. during the decade).

To the extent the data permit, the effects of the Great Recession on Hispanic entrepreneurs are also considered. Moreover, this book explores factors related to the likelihood of entrepreneurial success for this population. Some of these factors are more traditional in nature (such as the access to financial capital), but the analysis also delves into new areas, such as the roles

that technology and public procurement play in the success of Hispanic-owned businesses.

Many of the findings presented in this book indicate that Hispanic-owned enterprises tend to be smaller than other firms along several dimensions, including their sales and numbers of paid employees. Self-employed Hispanics also appear to lag behind their non-Hispanic

counterparts with respect to certain socioeconomic characteristics, such as educational attainment and the likelihood of being a micro-entrepreneur.

With that said, their economic impact should not be underestimated. The 2.3 million businesses owned by Hispanic entrepreneurs in the U.S. in

2007 had 1.9 million paid employees, and their $350.7 billion in sales generated an estimated $20 billion in state-sales-tax revenue that year alone.

In sum, the first decade of the 2000s witnessed a dramatic growth in the Hispanic population and the intensification of their entrepreneurial tendencies. If these demographic changes continue as the 2000s unfold, Hispanic entrepreneurship will become an increasingly vital component of American job creation and to the economic direction of the nation.

_____Dr. Alberto Davila is Professor of Economics and V.F. “Doc” and Gertrude Neuhaus Chair for Entrepreneurship at The Univeristy of Texas-Pan American

Dr. Marie T. Mora is Professor of Economics at The University of Texas-Pan American


“The 2.3 million businesses owned by

Hispanic entrepreneurs in the U.S. in 2007

had 1.9 million paid employees”

“Hispanic-owned businesses rose by nearly 44 percent (from 1.6 to 2.3 million firms)”

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Valley Talent

Meet the Fall 2013 VIP award recipient

The Economics and Finance Department at The University of Texas-Pan American (UTPA) announced Karla Ramos, a student at UTPA

pursuing a double major in economics and finance, as the recipient of the Fall 2013 Economics VIP Student Award. The award recognizes excellence in values, initiative and professionalism characteristics that the College of Business Administration (CoBA) seek to instill in its students. The award distinguishes an undergraduate student from the Economics and Finance Department each semester for outstanding educational performance, leadership, service and campus involvement.

Sponsored by San Juan Economic Development Corporation, the award was presented to Mrs. Ramos at the Border Economic Development & Entrepreneurship Symposium (BEDES), which was held at the Edinburg Conference Center at Renaissance in November. Mrs. Ramos was described as a dedicated, motivated and ambitious student who works diligently to achieve her goals.

As a student, Mrs. Ramos has been actively involved in numerous developments, leadership and volunteer capacities within CoBA and UTPA . She served as a student leader for The National Society of Collegiate Scholars, a national honor society, where she was a founding officer of the UTPA Chapter and received the ‘Officer Award’ twice. Mrs. Ramos also volunteers her time and knowledge by assisting CoBA in the My Achievement Plan Program (MAP) where she meets regularly with freshmen or new transfer students throughout the academic year to discuss everything from study habits to career choices.

She has actively participated in community service, such as fundraising for the Edinburg Children’s Hospital, Christmas Toy Drive, RGV Food Bank, Beach Clean Up, and letters to the troops for the Holidays. Mrs. Ramos has also been an active member of the Financial Management Association at UTPA since January 2012, having served as a Public Relations Officer and Treasurer for an academic year.

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